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Investing In the New Age: Retiring in Style

Investing for the future is one of thoseeat  up  by  inflation.
things that can be difficult. None of us know
exactly what the future is and where to putInvesting  in  a  New  Society:
our money. Many more of us know almost
nothing about investing and prefer to useThe new society will require a much more
seasoned professionals. In the end we aresophisticated investor than what was
left with little control over the fate of ournecessary during our parents time. Even
retirement.though the basics of investing are the same
such as risk vs. reward, diversification,
Conventional  Wisdom:living below your means, etc. are the same
the types of investments and the amount of
Conventional wisdom says live below yourrisk people are willing to make should
means, invest, and the government will chipchange.
in the rest. We get there through education
and working hard. For the Baby Boomers thisDiversity no longer includes mutual funds
made sense but many are now in trouble asonly but the mix of investments in stocks,
retirement is only a few years off and morebonds, real estate, business, and others. The
than 50% have less than $100,000 in theirmore different sectors of the society you
retirement  accounts.invest in the better chance you have of
whether declines in the market. For example,
During the era of the baby boomers thereal estate may further be invested in vacant
mentality drew from their parents whichland, apartments (income generating), office
typically lived through the Great Depression.buildings  or  houses.
During this time there was little employment,
difficulty starting businesses and a generalRisk is a natural part of getting a return.
feeling that one must save in order to wardGenerally the higher the risk the more money
off serious poverty. The rainy day mentalityto be made but also the more likely it is to
has  never  left  us.lose that money. The same can be said for low
risk low returns. In todays market there is
A  Changed  Economy:some fear that inflation could eat away at
ones  gains.
The economy is definitely going to change in
the next 20-30 years. Some of the changesLet us say that you are in a fund that pays
that are happening are the retirement of a6% interest. Not bad? The only problem is
large section of the population which willthat a 2006 inflation rate of 3.5% just left
need to be taken care of (possible bankruptcywith an increase of 2.5%. Ummmnot very good!
of Medicare & Social Security), the rise ofIf you really wanted a 6% return you would
oil prices ($4 to $5 a gallon) that will slowhave to make a 9.5% return on all of your
the economy down, huge national debt thatinvestments.
exceeds our ability to pay for it (without
rampant inflation from printing money), andIf you follow the advice of mutual fund
environmental  change  (lack  of  water).investors there is a good chance you wont
have much when retirement comes. That means
When the economy changes we will need toyou are going to have to take some risk by
change with it. That means society will shiftinvesting less in blue chips stocks and more
to the owners of production and the workersin small to medium businesses. The key to
thereby shrinking the middle class. Thus weavoiding collapse is to diversify your
will be a rich/poor society that will beportfolio with a basket of smaller companies
dramatically different than it is today. Alland investments that have nothing to do with
of the conventional wisdom people have beenthe stock market (i.e. real estate,
relying on for years will be wiped away orbusinesses, etc.).



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